¶ 1701
Overview
Scope of the chapter. This chapter examines the position of a creditor of a member of a Belize LLC. A member's creditor is a person who holds a claim against the member personally, arising from a contract, a tort, a guarantee, a divorce or a tax assessment, and who wishes to satisfy that claim out of the member's interest in the LLC. The creditor of the LLC itself, who has a claim against the company, is in a different position, governed by the liability shield and the bar on actions to disregard the company examined in chapter 16 (see supra ch. 16). The member's creditor confronts three provisions of the Limited Liability Companies Act, Cap. 270:01: section 36, which gives the Belize court exclusive jurisdiction over claims against a member's interest and makes the charging order the creditor's sole remedy; section 37, which replaces the general law of fraudulent conveyances for transfers to an LLC; and section 38, which provides that only Belize judgments are enforceable against the LLC, its managers and members in matters governed by the Act. Section 35, which provides that a member has no interest in the LLC's property and that the property is not available to satisfy a claim against a member, forms the background to all three (see supra ch. 16).
The design of sections 36 to 38. The three sections form a single design. Section 35 places the LLC's assets beyond the member's creditors. Section 36 confines those creditors to the member's interest, and within the interest to a charging order, which gives the creditor the economic rights of an assignee and nothing more. Section 37 deals with the creditor who says that the member put assets into the LLC to defeat the claim, and replaces the remedies of the general law with a narrow statutory claim against the LLC, subject to a high standard of proof, short time limits and a deposit for costs. Section 38 ensures that each of these rules is applied by a Belize court, by withholding effect from foreign judgments in matters governed by the Act. The provisions date from the original 2011 Act and were not altered by the 2023 amending Acts (see supra ¶ 1401). Limited Liability Companies Act ss. 35–38 (rev. ed. 2020); International Limited Liability Companies (Amendment) Act, 2023, No. 29 of 2023; Limited Liability Companies (Amendment) (No. 2) Act, 2023, No. 48 of 2023.
The creditor's position in summary. A creditor holding a judgment against a member of a Belize LLC must obtain a judgment of the Belize court before it can proceed against the member's interest. With that judgment it may apply to the Belize court for a charging order. If the order is made, the creditor becomes entitled to receive the distributions that the LLC chooses to make on the charged interest, until the judgment and interest are paid. The creditor cannot force a distribution, cannot vote, cannot inspect the LLC's records, cannot remove the manager, cannot apply to wind up the LLC and cannot have the interest sold. If the creditor says that assets were transferred to the LLC to defeat its claim, it must bring a claim under section 37 within the statutory time limits and prove its case beyond reasonable doubt. A foreign judgment or order, including an American charging order, turnover order or receivership order, is not enforceable against the LLC or its members in matters governed by the Act.
The member's position in summary. The member, for its part, remains a member "for all purposes," with its votes and its management rights, though the distributions on the charged interest are diverted to the creditor. Limited Liability Companies Act s. 59(1). Where the LLC has income and is classified as a pass-through entity for the member's tax purposes, the member may be taxed on income that is not distributed, and the Act contains no provision allowing the LLC to pay the member's tax without making a distribution that the creditor may claim (see infra ¶ 1760). The pressure of that tax burden, and of interest accruing on the judgment, is the creditor's principal practical leverage.
Sources. The chapter relies on the text of the Act in the 2020 revised edition, as amended by Act No. 29 of 2023 and Act No. 48 of 2023, both read in full for this edition. No reported Belize decision applying sections 36, 37 or 38 was located. Proceedings under the Act are heard in camera, and decisions are published only in edited form after the court has certified the editing. Limited Liability Companies Act s. 96(1)–(2). The scarcity of reported decisions reflects that rule in addition to the volume of litigation. American authorities are discussed where they illustrate the position of a creditor in the courts of the member's home jurisdiction. The companion volume on limited liability companies in this series examines the American charging-order statutes in full.